Delphi Financial Group, Inc. (NYSE:DFG) announced today that its
operating earnings (1) in the third quarter of 2010 were $47.8
million or $0.86 per share, compared to $53.6 million or $1.00 per
share in the third quarter of 2009. Annualized operating return on
beginning equity (2) in the third quarter of 2010 was 12.8%,
compared to 20.4% in the third quarter of 2009. Diluted book value
per share increased to $29.28 at September 30, 2010, up 20% since
December 31, 2009.
Delphi’s net income attributable to shareholders in the third
quarter of 2010 was $46.1 million or $0.83 per share, compared to
$20.8 million or $0.39 per share in the third quarter of 2009. Net
income attributable to shareholders in the third quarter of 2010
included a loss on early retirement of senior notes, net of taxes,
of $(2.4) million or $(0.04) per share and after-tax net realized
investment gains of $0.8 million or $0.01 per share, including
other-than-temporary impairments (OTTI) of $(4.2) million or
$(0.07) per share. Net income attributable to shareholders in the
third quarter of 2009 included after-tax net realized investment
losses of $(32.8) million or $(0.61) per share, including OTTI of
$(33.8) million or $(0.63) per share.
For the first nine months of 2010, Delphi’s operating earnings
were $141.4 million or $2.54 per share, compared to $147.3 million
or $2.91 per share in the first nine months of 2009. Net income
attributable to shareholders was $120.8 million or $2.17 per share,
compared to net income attributable to shareholders of $82.3
million or $1.63 per share for the first nine months of 2009. Net
income attributable to shareholders for the first nine months of
2010 included a loss on early retirement of senior notes, net of
taxes, of $(2.6) million or $(0.05) per share and after-tax net
realized investment losses of $(18.1) million or $(0.32) per share,
including OTTI of $(32.6) million or $(0.59) per share. Net income
attributable to shareholders for the first nine months of 2009
included after-tax net realized investment losses of $(65.0)
million or $(1.28) per share, including OTTI of $(61.5) million or
$(1.21) per share.
Robert Rosenkranz, Chairman and Chief Executive Officer,
commented, “Delphi continued to achieve strong operating
performance in the third quarter, with shareholders’ equity and
book value per share both reaching new all-time highs. We were
pleased with our top line growth, our investment results and the
favorable loss ratios in our insurance businesses. Safety National
increased our leadership position in the excess workers’
compensation market while also achieving notable growth in assumed
workers’ compensation reinsurance. Reliance Standard achieved
modest growth in premiums and production over last year’s third
quarter while maintaining pricing and underwriting discipline.”
Delphi’s core group employee benefit premiums in the third
quarter of 2010 rose 4% to $341.6 million from $329.8 million in
the third quarter of 2009. This premium growth was driven by an 11%
increase in core premiums at Delphi’s Safety National subsidiary.
Excess workers’ compensation premiums rose 8% in the quarter,
boosted by a 23% increase in production, and assumed workers’
compensation reinsurance premiums rose 29%. In addition, premiums
increased 1% at Delphi’s Reliance Standard Life subsidiary, driven
in part by strong sales of Delphi’s Integrated Employee Benefits
program. Delphi’s group employee benefit combined ratio in the
third quarter of 2010 was 94.9%, compared with 93.7% for the third
quarter of 2009, as a decline in the loss ratio was offset by an
increase in the expense ratio.
Delphi’s asset accumulation segment, which is primarily focused
on individual fixed annuities, had new sales of $153.6 million in
the third quarter of 2010, up from $57.5 million in last year’s
third quarter. New annuity sales in the first nine months of 2010
were $270.4 million, up from $232.2 million in the first nine
months of 2009. Funds under management at September 30, 2010 rose
to $1.6 billion from $1.4 billion at December 31, 2009.
Delphi’s net investment income in the third quarter of 2010 was
$86.9 million compared to $88.7 million in the third quarter of
2009. Invested assets at September 30, 2010 were $6.6 billion
compared to $5.7 billion at September 30, 2009. The tax equivalent
yield on the Company’s investment portfolio in the third quarter of
2010 was 6.0%, compared to 7.0% in the third quarter of 2009.
Mr. Rosenkranz added, “Investment income was in line with
expectations, despite lower prevailing interest rates. Our fixed
income investment yields were constrained by continued high levels
of short-term investments, as we patiently seek attractive niches
in an environment where rates are low and spreads narrow. We were
pleased that Delphi reported net realized investment gains in the
quarter for the first time since 2007, again consistent with the
expectations we expressed earlier this year. Delphi continued to
strengthen our balance sheet and capital structure with the partial
call in September of $50 million of our 8.00% Senior Notes. Since
the beginning of the year we have retired $75 million of these
notes, which will save about $5 million to $6 million in pre-tax
interest expense annually. At the end of the third quarter, our
debt-to-capital ratio was 18% and holding company financial
resources were at a comfortable $71 million.”
Conference Call
On October 27, 2010 at 11:00 AM (Eastern time), Delphi will
broadcast the Company’s third quarter 2010 earnings teleconference
live on the Internet, hosted by Robert Rosenkranz, Chairman and
Chief Executive Officer. Investors can access the broadcast at
www.delphifin.com by clicking on the webcast icon on the home page.
It is advisable to register at least 15 minutes prior to the call
to download and install any necessary audio software. The online
replay will be available on Delphi’s website for one week beginning
at approximately 12:00 PM (Eastern time) on October 27, 2010.
Investors can also download Delphi’s third quarter 2010 statistical
supplement from the Company’s website at www.delphifin.com.
In connection with, and because it desires to take advantage of,
the “safe harbor” provisions of the Private Securities Litigation
Reform Act of 1995, Delphi cautions readers regarding certain
forward-looking statements in the foregoing discussion and in any
other statements made by, or on behalf of, Delphi, whether in
future filings with the Securities and Exchange Commission or
otherwise. Forward-looking statements are statements not based on
historical information and which relate to future operations,
strategies, financial results, prospects, outlooks or other
developments. Some forward-looking statements may be identified by
the use of terms such as “expects,” “believes,” “anticipates,”
“intends,” “judgment,” “outlook,” “effort,” “attempt,” “achieve,”
“project,” or other similar expressions.
Forward-looking statements are necessarily based upon estimates
and assumptions that are inherently subject to significant
business, economic, competitive and other uncertainties and
contingencies, many of which are beyond Delphi’s control and many
of which, with respect to future business decisions, are subject to
change. Examples of such uncertainties and contingencies include,
among other important factors, those affecting the insurance
industry generally, such as the economic and interest rate
environment, federal and state legislative and regulatory
developments, including but not limited to changes in financial
services, employee benefit and tax laws and regulations, changes in
accounting rules or interpretations thereof, market pricing and
competitive trends relating to insurance products and services,
acts of terrorism or war, and the availability and cost of
reinsurance, and those relating specifically to Delphi’s business,
such as the level of its insurance premiums and fee income, the
claims experience, persistency and other factors affecting the
profitability of its insurance products, the performance of its
investment portfolio and changes in Delphi’s investment strategy,
acquisitions of companies or blocks of business, and ratings by
major rating organizations of Delphi and its insurance
subsidiaries. These uncertainties and contingencies can affect
actual results and could cause actual results to differ materially
from those expressed in any forward-looking statements made by, or
on behalf of, Delphi. Forward-looking statements contained in the
foregoing discussion are made as of the date of this press release
and Delphi disclaims any obligation to update these or any other
forward-looking statements.
Delphi Financial Group, Inc. is an integrated employee benefit
services company. Delphi is a leader in managing all aspects of
employee absence to enhance the productivity of its clients and
provides the related group insurance coverages: long-term and
short-term disability, life, excess workers’ compensation for
self-insured employers, large casualty programs including large
deductible workers’ compensation, travel accident, dental and
limited benefit health insurance. Delphi’s asset accumulation
business emphasizes individual annuity products. Delphi’s common
stock is listed on the New York Stock Exchange under the symbol DFG
and its corporate website address is www.delphifin.com.
(1) Operating earnings, which is a non-GAAP financial
measure, consists of net income attributable to shareholders
excluding after-tax realized investment gains and losses, losses on
early retirement of senior notes and junior subordinated deferrable
interest debentures and results from discontinued operations, as
applicable. The Company believes that because these excluded items
arise from events that are largely within management’s discretion
and whose fluctuations can distort comparisons between periods, a
measure excluding their impact is useful in analyzing the Company's
operating trends. Investment gains or losses are realized based on
management’s decision to dispose of an investment, and investment
losses are realized based on management’s judgment that a decline
in the market value of an investment is other than temporary. Early
retirement of senior notes and junior subordinated deferrable
interest debentures occurs based on management’s decision to redeem
or repurchase these notes and debentures. Discontinued operations
result from management’s decision to exit or sell a particular
business. Thus, these excluded items are not reflective of the
Company’s ongoing earnings capacity, and trends in the earnings of
the Company’s underlying insurance operations can be more clearly
identified without their effects. For these reasons, management
uses the measure of operating earnings to assess performance and
make operating plans and decisions, and the Company believes that
analysts and investors typically utilize measures of this type as
one element of their evaluations of insurers’ financial
performance. However, gains or losses from the excluded items,
particularly as to investments, can occur frequently and should not
be considered as nonrecurring items. Further, operating earnings
should not be considered a substitute for net income attributable
to shareholders, the most directly comparable GAAP measure, as an
indication of the Company’s overall financial performance and may
not be calculated in the same manner as similarly titled captions
in other companies’ financial statements. For reconciliations of
the amounts of operating earnings to the corresponding amounts of
net income attributable to shareholders for the indicated periods,
see the table captioned “Non-GAAP Financial Measures –
Reconciliation to GAAP” which follows. All per share amounts are on
a diluted basis. (2) Annualized operating return on
beginning equity, which is a non-GAAP financial measure, is based
on operating earnings, as defined in the preceding footnote (1)
(rather than the most directly comparable GAAP measure, net income
attributable to shareholders), divided by beginning shareholders’
equity. For the reasons that the Company believes that the
calculation of this non-GAAP measure based upon operating earnings
is useful, see footnote (1). For reconciliations of the amounts of
annualized operating return on equity to the corresponding amounts
of annualized net income return on equity for the indicated
periods, see the table captioned “Non-GAAP Financial Measures –
Reconciliation to GAAP” which follows.
DELPHI
FINANCIAL GROUP, INC. Non-GAAP Financial Measures
Reconciliation to GAAP (Unaudited; in thousands, except
per share data) Three Months
Ended
Nine Months Ended
09/30/2010 09/30/2009 09/30/2010
09/30/2009
Income Statement
Data
Operating earnings $ 47,806 $ 53,621 $ 141,395 $
147,268 Net realized investment gains (losses) (A) 775 (32,798 )
(18,062 ) (64,954 ) Loss on early retirement of senior notes (B)
(2,444 ) - (2,582 ) -
Net income attributable to shareholders (GAAP
measure) $ 46,137 $ 20,823 $ 120,751 $
82,314
Diluted results per share of common stock
attributable to shareholders: Operating earnings $ 0.86
$ 1.00 $ 2.54 $ 2.91 Net realized investment gains (losses) (A)
0.01 (0.61 ) (0.32 ) (1.28 ) Loss on early retirement of senior
notes (B) (0.04 ) - (0.05 ) -
Net income attributable to shareholders (GAAP
measure) $ 0.83 $ 0.39 $ 2.17 $ 1.63
Annualized operating return on beginning
shareholders' equity 12.8 % 20.4 % 13.9 % 23.9 %
Annualized net income return on beginning shareholders' equity
(GAAP measure) 12.3 % 7.9 % 11.8 % 13.4 % (A) Net
of an income tax expense (benefit) of $0.4 million, $(17.7)
million, $(9.7) million and $(35.0) million, or $0.01 per diluted
share, $(0.33) per diluted share, $(0.17) per diluted share and
$(0.69) per diluted share for the three and nine months ended
09/30/2010 and 09/30/2009, respectively. The tax effect is
calculated using the Company's statutory tax rate of 35%.
(B) Net of an income tax benefit of $1.3 million or $0.02 per
diluted share and $1.4 million or $0.02 per diluted share for the
three and nine months ended 09/30/2010
Balance Sheet
Data
09/30/2010 12/31/2009
Shareholders'
equity, excluding accumulated other comprehensive income (loss)
$ 1,510,112 $ 1,392,975 Add: Accumulated other comprehensive income
(loss) 138,180 (33,956 )
Shareholders'
equity (GAAP measure) $ 1,648,292 $ 1,359,019
Diluted book value per share of common
stock, excluding accumulated other comprehensive income
(loss)
$ 26.89 $ 25.02 Add: Accumulated other comprehensive income (loss)
2.39 (0.60 )
Diluted book value per share
of common stock (GAAP measure) $ 29.28 $ 24.42
Please see footnotes 1 and 2 of the press release to which this
table is attached for important information regarding these
non-GAAP financial measures.
DELPHI FINANCIAL GROUP, INC. CONSOLIDATED
STATEMENTS OF INCOME (Unaudited; in thousands, except per
share data) Three Months
Ended Nine Months Ended 09/30/2010 09/30/2009
09/30/2010 09/30/2009 Revenue:
Premium and fee income $ 357,019 $ 342,610 $ 1,057,348 $ 1,052,776
Net investment income 86,886 88,682 249,170 243,560 Net realized
investment losses: Total other than temporary impairment losses
(13,886 ) (73,771 ) (62,818 ) (137,007 )
Less: Portion of other than temporary
impairment losses recognized in other comprehensive income
7,498 21,748 12,599
42,467 Net impairment losses recognized in earnings
(6,388 ) (52,023 ) (50,219 ) (94,540 ) Other net realized
investment gains (losses) 7,580 1,564
22,431 (5,389 ) Net realized investment gains
(losses) 1,192 (50,459 ) (27,788 ) (99,929 ) Loss on early
retirement of senior notes (3,760 ) -
(3,972 ) - Total revenue 441,337
380,833 1,274,758 1,196,407
Benefits and expenses: Benefits, claims and interest
credited to policyholders 250,594 240,956 741,602 748,361
Commissions and expenses 117,558 109,569
342,060 324,850 368,152
350,525 1,083,662
1,073,211 Operating income 73,185 30,308 191,096
123,196 Interest expense: Corporate debt 7,783 3,806 23,370
11,667 Junior subordinated debentures 3,241 3,247 9,730 9,728
Income tax expense 15,982 2,321
37,130 19,261 Net income 46,179 20,934 120,866
82,540 Less: Net income attributable to noncontrolling
interest 42 111 115
226 Net income attributable to shareholders $
46,137 $ 20,823 $ 120,751 $ 82,314
Basic results per share of common stock: Net
income attributable to shareholders $ 0.83 $ 0.39 $ 2.18 $ 1.63
Weighted average shares outstanding 55,404 52,947 55,284
50,376 Diluted results per share of common stock: Net income
attributable to shareholders $ 0.83 $ 0.39 $ 2.17 $ 1.63
Weighted average shares outstanding 55,800 53,385 55,674 50,617
Dividends paid per share of common stock $ 0.11 $ 0.10 $
0.31 $ 0.30
DELPHI FINANCIAL GROUP, INC.
SUMMARIZED CONSOLIDATED BALANCE SHEETS (Unaudited; in
thousands) 09/30/2010
12/31/2009 Assets: Investments: Fixed maturity securities,
available for sale $ 5,724,161 $ 4,875,681 Short-term investments
360,415 406,782 Other investments 476,436
466,855 6,561,012 5,749,318 Cash 77,248 65,464 Cost
of business acquired 246,002 250,311 Reinsurance receivables
362,481 355,030 Goodwill 93,929 93,929 Other assets 335,791 293,835
Assets held in separate account 117,321
113,488 Total assets $ 7,793,784 $ 6,921,375
Liabilities and Equity: Policy liabilities and
accruals $ 2,912,062 $ 2,803,189 Policyholder account balances
1,662,176 1,454,114 Corporate debt 368,750 365,750 Junior
subordinated debentures 175,000 175,000 Other liabilities and
policyholder funds 908,761 647,269 Liabilities related to separate
account 117,321 113,488 Total
liabilities 6,144,070 5,558,810
Equity: Class A Common Stock 563 560 Class B Common Stock 60 60
Additional paid-in capital 675,428 661,895 Accumulated other
comprehensive income (loss) 138,180 (33,956 ) Retained earnings
1,031,307 927,706 Treasury stock, at cost (197,246 )
(197,246 ) Total shareholders' equity 1,648,292 1,359,019
Noncontrolling interest 1,422 3,546
Total equity 1,649,714 1,362,565 Total liabilities
and equity $ 7,793,784 $ 6,921,375
DELPHI FINANCIAL GROUP, INC. CONSOLIDATED
STATEMENTS OF CASH FLOWS (Unaudited; in thousands)
Nine Months Ended 09/30/2010 09/30/2009
Operating activities: Net income attributable to
shareholders $ 120,751 $ 82,314
Adjustments to reconcile net income
attributable to shareholders to net cash provided by operating
activities:
Change in policy liabilities and policyholder accounts 180,506
225,538 Net change in reinsurance receivables and payables (9,657 )
(4,613 ) Amortization, principally the cost of business acquired
and investments 65,264 38,295 Deferred costs of business acquired
(101,002 ) (97,936 ) Net realized losses on investments 27,788
99,929 Net change in federal income taxes 12,197 6,632 Other
(42,849 ) (14,101 ) Net cash provided by operating
activities 252,998 336,058
Investing activities: Purchases of investments and loans made
(1,599,851 ) (1,206,214 ) Sales of investments and receipts from
repayment of loans 1,057,614 177,957 Maturities of investments
70,801 637,166 Net change in short-term investments 46,367 (171,162
) Change in deposit in separate account -
4,845 Net cash used by investing activities (425,069
) (557,408 ) Financing activities: Deposits to
policyholder accounts 277,854 242,614 Withdrawals from policyholder
accounts (82,832 ) (131,337 ) Proceeds from issuance of 2020 Senior
Notes 250,000 - Borrowings under revolving credit facility 50,000
17,000 Principal payments under revolving credit facility (222,000
) (2,000 ) Early retirement of senior notes (75,000 ) - Proceeds
from issuance of common stock - 121,121 Cash dividends paid on
common stock (17,150 ) (14,767 ) Other financing activities
2,983 7,151 Net cash provided by financing
activities 183,855 239,782
Increase in cash 11,784 18,432 Cash at beginning of period
65,464 63,837 Cash at end of period $ 77,248
$ 82,269
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